China’s reputation as an emerging world economy has garnered the attention of US law enforcement, including the US Securities and Exchange Commission and the US Department of Justice, which has increased its prosecution of violations of the Foreign Corrupt Practices Act. Conducting proper due diligence and taking meaningful action to correct risk areas can help avoid problems with joint venture partners or third-party agents that could lead to such violations.

In December 2010, the US Securities and Exchange Commission (SEC) filed a settled enforcement action against a San Jose, California-based technology company (the Company), alleging multiple violations of the Foreign Corrupt Practices Act (FCPA) due to the actions of two of its joint venture entities in China. As part of the proposed settlement, the Company agreed to pay approximately US$1.25 million and comply with certain undertakings regarding its FCPA compliance program. The Company also entered into a non-prosecution agreement with the US Department of Justice (DOJ), in which it agreed to pay a criminal fine of $1.7 million and implement certain compliance-related measures. The Company is the latest in a growing list of US firms that have run afoul of the FCPA in China, and with regard to alleged misconduct by joint venture partners.